Tax-Advantaged Retirement Planning

Heading into retirement with confidence is easier if your planning includes steps to minimize taxes. Even though your income is likely to decline, you still could be subject to high taxes if you’re not careful.

CHECK YOUR NUMBERS

Recent changes to the tax code could affect your retirement planning. New regulations around tax brackets, allowable deductions, estate taxes and other issues may change your tax liability significantly. Be sure to digest the numbers. Then, as you begin to see your retirement tax picture, there are a variety of strategies that could help keep your IRS bills to a minimum.

DO YOUR (GEOGRAPHY) HOMEWORK

Tax rates vary widely state to state. Tax havens like Wyoming, Alaska and South Dakota offer retirees the benefits of no income or estate taxes, and low property and sales taxes.1 If you live in a highly-taxed state — we’re looking at you, Connecticut and Kansas — you might want to consider relocating.2 You might even follow the lead of retirees who opt to move abroad for low-cost, tax-advantaged lifestyles in countries like Costa Rica and Mexico.

TRIM YOUR EXPENSES

Spend less, keep more — it’s a prescription for less stress and more confidence in retirement. But frugality has tax benefits too. Making modest, rather than major withdrawals from retirement accounts may keep you in a lower tax bracket.

INVESTIGATE TAX-ADVANTAGED RETIREMENT INCOME SOURCES

Social Security benefits will only take you so far in retirement. To help fill the income gap, look into tax-advantaged sources of guaranteed income:

Annuities provide a guaranteed payout for life, and your initial investment grows tax-deferred until the gains are withdrawn. By the time you receive annuity payments, you could be in a lower tax bracket. Savvy retirees may even use part of their IRA to purchase a single-premium annuity to create more available income, while reducing the required minimum distribution (RMD). More on RMDs below.

Whole life insurance3 provides a tax-advantaged death benefit along with guaranteed cash value growth — earnings you can use to supplement your retirement income — with tax-free loans that can be taken against the policy.4

SAVE A WHALE ON YOUR TAX LIABILITY

With certain retirement plans, like IRAs, you have to withdraw a required minimum distribution (RMD) annually starting at age 70 and a half. In some cases, up to $100,000 a year of your RMD may be tax-free if you transfer the money directly to charity. It’s a great way to do good while doing well on your taxes.

[3] While the primary purpose of life insurance is death benefit protection, it is important to understand the advantages that cash value accumulation can provide to clients, including supplemental income during retirement. Policy benefits are reduced by any outstanding loans and loan interest. Dividends, if any, are affected by policy loans and loan interest. If the policy lapses, or is surrendered, any loans considered gain in the policy may be subject to ordinary income taxes.

There are a number of ways to withdraw money from a qualified retirement plan.

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This material is intended for general public use. By providing this material, Guardian is not undertaking to provide investment advice for any specific individual or situation, or to otherwise act in a fiduciary capacity. Please contact a financial professional for guidance and information specific to your individual situation.